Chinese investors are likely to increase their investments in fixed income products over the next five years, while the equity allocation will remain relatively low, according to John Ott, a Shanghai-based partner at Bain.
Now, the country’s wealthy investors prefer private funds to equities, according to fund managers.
1. China’s stock market down
Today, equities remain at the bottom of the popularity list for Chinese investors, while private funds play a bigger role in the country’s asset management market.
Nevertheless, the North American market remains the largest, at $37.4 billion. However, China has jumped from eighth to fourth place in just five years, and analysts expect Chinese assets under management to triple by 2025 to become the second-largest market.
2. A different Chinese market from its U.S. counterpart
The composition of investment in China seems very different from that of the United States. While equities account for a large portion of U.S. portfolios, Chinese investors will prefer real estate to the volatile domestic stock market.
As Chinese investors become more sophisticated, local financial services are focusing more on the development of fixed income and private equity products.
a) Mobile money market funds still the majority
In the mass market, mobile money market funds dominate. The category accounts for 60% of investments in Chinese public funds.
For example, the main money market fund on Yu’e Bao, a mobile investment service run by Ant Financial and affiliated with Alibaba, has become the largest fund of its kind in four years.
The large allocation to private investment makes sense in a country where many fast-growing start-ups will soon go public or acquire themselves.
b) Fixed-income investment
However, it is predicted that the allocation to money market funds will fall to about 50% over the next five years, while the proportion of fixed income investment will increase from 15% to 20%.
High net worth Chinese investors are also putting more money into real estate funds such as homes, and hedge funds rather than individual equities, according to Yue Zhang, senior vice president at CreditEase, a major Chinese wealth manager. More and more of these wealthy investors are allocating assets abroad, he added.
c) Foreign investors attracted to the Chinese market
Western companies such as UBS and BlackRock have also been attracted to growth opportunities, and a PwC survey of 126 global asset managers found that 40% of non-Chinese executives are turning to China this year.
But the future development of China’s asset management industry still depends on government regulation. Beijing is trying to encourage more stable investment in the stock market, including from foreigners, and to increase the supervision of financial firms as a whole.
“While private wealth is likely to grow faster than anywhere else, and the government is taking steps to open up the asset management market, serious barriers remain,” the PwC report says.
Why choose to invest in China:
- China is the world’s largest domestic market with 1.3 billion potential customers, including a growing middle class;
- A highly developed productive sector (manufacturing and heavy industries);
- A favorable geographical location (proximity to emerging Asian markets, Japan, seafront);
- Even though the situation is changing quite rapidly, wage costs remain relatively low;
- Development of a new export network (Silk Road network).